International Monetary Fund chief defends Powell after Trump says Fed has 'gone crazy'

US stocks have plunged to their worst loss in eight months

US stocks have plunged to their worst loss in eight months

Japanese stocks plunged by more than three percent Thursday following the worst session on Wall Street for months, as US President Donald Trump said the Federal Reserve had "gone crazy" with plans for higher interest rates.

During that same September meeting, the Federal Reserve hiked the benchmark interest rate by one-quarter of a percentage point, the third such increase so far this year. "It's so tight. I think the Fed has gone insane", Trump told reporters as he arrived for a campaign rally ahead of the USA mid-term elections. "No, I think the Fed is making a mistake". The Federal Reserve has been gradually raising interest rates to less stimulative levels in response to strong growth in the US economy and historically low unemployment levels.

Fed Chair Jerome Powell, whom Trump named to lead the central bank, has repeatedly brushed off the comments saying officials do not pay attention to politics.

"The markets are fraught with peril", warned Stephen Innes, head of trading at OANDA, adding there was a "horrible intersection of risk aversion" from the US-China trade conflict and rising US interest rates.

"The current dip in confidence can be allayed were the Federal Reserve to signal it is easing off its quantitative tightening and rate rises", he wrote. "I mean I don't know what their problem is but they are raising interest rates and it's ridiculous", Trump said late Wednesday night.

USA stocks took their worst loss in eight months Wednesday, with the Dow Jones Industrial Average sinking 831 points and the Nasdaq composite logging its biggest loss in more than two years.

But he's also calling the drop "a correction we've been waiting for for a long time".

Trump was briefed on the market turmoil earlier in the day, a White House official said. "He didn't say anything remotely like that", he said on CNBC.

Jasper Lawler, head of research at London Capital Group, offered this explanation: "The bloodbath for global equities comes as investors adjust to a world of higher United States interest rates and USA treasury yields".

The IMF chief acknowledged, though, that recent Fed rate increases had been a headache for many emerging economies as capital outflows continued and local currencies kept tumbling.

Meanwhile, trade conflicts raise costs for companies, which could hit the bottom line in quarterly earnings - something analysts said had helped prompt Wednesday's sell-off.

United States presidents have rarely criticised the Fed in recent decades because its independence has been seen as important for economic stability. Presidents for more than two decades had avoided public comments on the Fed's interest-rate policies as a way of demonstrating respect for the institution's independence.

"My assumption for the policy rate is that we can achieve our objective of keeping inflation to the 2 percent symmetric objective and the unemployment rate slowly rising back towards its sustainable rate with that stance of funds rate - but if we need more, we'll do more", he said.

"And we just try to do the right thing for the medium and longer term for the country".